El Salvador will inject $1 billion into its economy following an agreement with the IMF

The funds will be used to increase capital flow in the domestic market and will be channeled into advance payments for micro, small, and medium-sized businesses, advances to suppliers, and repayments of domestic loans.

El Salvador’s President Nayib Bukele announced this Sunday that the local economy will receive a capital injection of up to $1 billion, following a fiscal agreement reached last February with the International Monetary Fund (IMF).

Bukele indicated that these funds are equivalent to 2.8% of the country’s current Gross Domestic Product (GDP) and will be added as additional liquidity to state coffers, in order to boost trade flows within the country.

Through his social media account, X, he said that the $1 billion will be channeled into advance payments to micro, small, and medium-sized businesses, as well as advances to suppliers and repayments of domestic loans.

Domestic loans are the debt the government holds with local banks or financial institutions. Amortization means continuing to pay these loans, which the Ministry of Finance issues through Treasury Bills and Certificates (Letes and Cetes). These loans are typically short-term debt, payable within one year.

The announced measure seeks to “boost” economic activity in the short term by “increasing the flow of capital” moving through the local market. In this way, it aims to “stimulate” consumption and sales in the commercial sector, said the Salvadoran leader.

“Thanks to our agreement with the IMF, in the coming days the government will inject $1 billion (~2.8% of GDP) in additional liquidity into the national economy. The objective of this measure is to boost economic activity in the short term by increasing the flow of capital into the domestic market,” Bukele announced.

X’s artificial intelligence, Grok, consulted by Bukele, explained “in simple terms” the measure announced by the Salvadoran government, stating that “this way, there will be more money circulating quickly. Benefits for Salvadorans: more jobs, support for small businesses, more economic activity, and stable prices without inflation. It’s like giving the economy a boost without raising prices!”

Similarly, Bukele argues that the measure will not generate inflation because it involves currencies already available in international markets, rather than local currency issuance. He maintains that it “strengthens” the country’s production without affecting its macroeconomic stability.

The fiscal agreement with the IMF was endorsed in February of this year and allowed for an initial and immediate disbursement of $113 million. The total agreement is for $1.4 billion, executed through a fiscal consolidation program under the agency’s Expanded Fund Facility.

This program also includes reforms to public administration and the pension system.

The president did not provide further details on the date the funds will be provided to companies and suppliers, or their categories. He also did not specify how much he will allocate to each of them or to repay domestic loans.